Correlation Between Pool and Cheesecake Factory
Can any of the company-specific risk be diversified away by investing in both Pool and Cheesecake Factory at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Pool and Cheesecake Factory into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pool Corporation and The Cheesecake Factory, you can compare the effects of market volatilities on Pool and Cheesecake Factory and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Pool with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pool and Cheesecake Factory.
Diversification Opportunities for Pool and Cheesecake Factory
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Pool and Cheesecake is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and Pool is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Pool Corporation are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of Pool i.e., Pool and Cheesecake Factory go up and down completely randomly.
Pair Corralation between Pool and Cheesecake Factory
Given the investment horizon of 90 days Pool is expected to generate 2.42 times less return on investment than Cheesecake Factory. But when comparing it to its historical volatility, Pool Corporation is 1.08 times less risky than Cheesecake Factory. It trades about 0.02 of its potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,189 in The Cheesecake Factory on September 3, 2024 and sell it today you would earn a total of 1,875 from holding The Cheesecake Factory or generate 58.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pool Corp. vs. The Cheesecake Factory
Performance |
| Timeline |
| Pool |
| The Cheesecake Factory |
Pool and Cheesecake Factory Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pool and Cheesecake Factory
The main advantage of trading using opposite Pool and Cheesecake Factory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pool position performs unexpectedly, Cheesecake Factory can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Cheesecake Factory will offset losses from the drop in Cheesecake Factory's long position.The idea behind Pool Corporation and The Cheesecake Factory pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Cheesecake Factory vs. Highway Holdings Limited | Cheesecake Factory vs. QCR Holdings | Cheesecake Factory vs. Partner Communications | Cheesecake Factory vs. Acumen Pharmaceuticals |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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